The Tanzania Economy
Tanzania is one of the poorest countries in the world, with a per capita income estimated at about $250 per year. Tanzania is a resource-rich country with an area of 945,000 square kilometers, larger than France and Germany combined, and a population of about 33 million, growing at about 3% a year.
The economy is heavily dependent on agriculture, accounting for 50% of GDP and providing 85% of exports and 80% of employment. Agricultural products are primarily coffee, cotton, tea, cashew nuts, sisal, and tobacco. Industry accounts for some 15% of GDP and is mainly limited to processing agricultural products and light consumer goods. The mining sector has great potential, but has yet to be fully and carefully developed. Tourism has also tremendous potential and has become one of Tanzania's most dynamic sectors, showing significant growth in recent years. The service and informal sectors are also growing rapidly and are increasingly important sources of employment.
The current Government has maintained a strong focus and commitment to improving fiscal performance and instituting structural reforms to underpin both strong growth and poverty alleviation. These reforms have focussed on increasing allocations to social/priority sectors through:
These reforms have contributed to an average real GDP growth rate of 5% in recent years, a significant improvement compared to the 3% growth realised in the early 1990s. This is a strong result, especially given the negative impact during this period of falling commodity prices, the slowdown in the world economy, and more recently, declining world tourism. Simultaneously, many of the distortions that existed in the 1990s have been dealt with - markets are freer and the public sector is smaller. Inflation is also down from over 30% in 1995 to 5% in 2000. Real GDP growth is realistically projected to be at 5.5% through the medium term, with agriculture, mining and the tourism sectors the driving forces.
Tanzania has received considerable support for its economic, institutional strengthening, and poverty alleviation programmes from the international community, who are especially active in the social sectors, public sector capacity building, civil service reform and governance issues. Most significantly, in April 2000, IDA and the IMF reviewed Tanzania's Poverty Reduction Strategy Paper (PRSP) and approved its eligibility for interim debt relief under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative framework. In November 2001, Tanzania reached the HIPC completion point - only the fourth country to do so, following Bolivia, Mozambique and Uganda.
Prior to the HIPC Initiative, Tanzania's external debt stood at around US$7 billion. As a result of the HIPC Initiative, the net present value of Tanzania's external debt is reduced by some 54% and debt service payments will be reduced by an average of 47% over time. Looking at the HIPC benefits another way, prior to HIPC, about 20% of government revenue was spent in paying external debt; after HIPC, less than 8% of revenue will be spent on debt service during the period through 2010. Under the HIPC, resources saved from debt service are allocated to key anti-poverty programs, including education, health and infrastructure, as outlined in Tanzania's Poverty Reduction Strategy Paper.
Notwithstanding Tanzania's positive economic performance under the 3rd Phase Government, a number of challenges remain. Economic growth needs to accelerate beyond 6% pa to have any significant impact on poverty reduction, unemployment remains high, infrastructure continues to constrain growth, institutional capacity needs strengthening, and a constant policy environment is needed to encourage investors. Thus, despite the positive performance of Tanzania over the past decade, major challenges remain.
A major concern for donors in Tanzania, as elsewhere in the developing world, is the issue of accountability, transparency and institutional capacity to manage public services. Tanzania, together with the international community, is addressing these issues head on. Significant programmes are under way to turn the tide on corruption in Tanzania. But, the international community needs also to recognise that culture does not change over night. The on-going and nation-wide public sector reform process, together with the poverty alleviation programmes and efforts to enhance the role of the public sector in Tanzania, provide a strong basis for assuming that Tanzania will be successful. This outlook is firmly underpinned by Tanzania's long-standing political stability and democratic traditions.